On 11 March, Rishi Sunak, Chancellor of the Exchequer, delivered his first budget.
It is not known how much the Budget differs from that under development by his predecessor, but the new Chancellor, in post for less than a month, faced a new threat to the economy; that posed by the corona virus (COVID19). The Chancellor promised a “temporary, timely and targeted” fiscal response to alleviate the financial implications for businesses, employees and those who are self-employed or in the gig economy. Moreover, he promised the NHS whatever it needs to tackle COVID19.
The Chancellor also promised, as expected, significant financial stimulus to invest in public services and infrastructure and to ”level up” the economy.
The only specific mention for pensions in the speech was a £90,000 increase in both the “threshold” and “adjusted income” levels for the tapered annual allowance (AA). More information on this and other matters affecting pensions contained in the budget documents is set out below.
The Chancellor announced that the AA taper threshold and the adjusted income threshold (this includes employer contributions to pension schemes) will each increase by £90,000. This means that no individuals with an income of less than £200,000 will be subject to the AA taper. As now, for each £1 of income over the adjusted income threshold (£240,000 from 6 April 2020), the standard AA will reduce by 50p until it bottoms out at £4,000 ie once adjusted income is at least £312,000. Currently the taper floor is £10,000.
The increased taper thresholds apply to all pension provision; it is not restricted to the NHS, or just the public sector.
There is no change to the standard AA.
The Lifetime Allowance (LTA) for 2020-21 has been confirmed at £1,073,100.
There are two methods by which individuals receive tax relief on their own pension contributions; through the “net pay arrangement” or “relief at source” (RAS). The former, commonly used by occupational schemes, provides immediate relief at the individual’s highest rate of marginal tax, which means that non-tax payers receive no relief. Under RAS, employee contributions, including those for non-tax payers, are grossed up by the basic rate of tax with any additional tax relief being obtained through self assessment.
It is not permissible for an occupational scheme to operate both the net pay and the RAS system.
The government will “shortly publish a call for evidence on pensions tax relief administration”, seeking to find ways to tackle the inequitable treatment of non and low tax payers under the two systems.
The NMPA remains at 55. In 2014 the Government confirmed that it would increase this to 57 in 2028 and that it would remain 10 years below State Pension age thereafter. However, there is no mention of legislation to do this and there is a risk that the Government will face criticism that it has given insufficient notice if it fails to do so soon.
The Chancellor confirmed that the primary threshold for employees’ National Insurance Contributions will rise from £8,632 to £9,500 from April 2020. By contrast, the secondary threshold for employers’ National Insurance Contributions increased from £8,632 to £8,788 with most other limits similarly increasing by CPI or staying the same.
The Debt Management Report published alongside the Budget, sets out the financing remit for 2020-21. This showed a reduction in the proportion of index-linked gilt issuance as a share of total issuance planned for 2020-21 (13.2%) down from that originally planned for 2019-20 (19.1%). This continues the government’s drive to reduce the proportion of index-linked gilt issuance over the medium term.
The UK Statistics Authority and HM Treasury have launched a consultation on proposals to address the shortcomings of the Retail Prices Index (RPI) as a measure of inflation. It confirms a few points that were already apparent:
It was announced that a National Infrastructure Strategy will be published later in the spring, with plans for a “once in a generation transformation of the UK’s economic infrastructure”.
In 2018, the Government announced that it would change the rules so that HMRC is promoted to a “secondary preferential creditor” in relation to tax debts held by a business on behalf of their customers and employees eg VAT and PAYE. This change will now be delayed from 6 April 2020 to 1 December 2020, but could reduce the assets available to a pension scheme from an insolvent employer.
In his speech, the Chancellor referred briefly to an autumn Budget. Whether this will announce more far-reaching changes for pensions remains to be seen.
